Can Bernake Fix the Problem If He Doesn’t Understand It?

[The gap between rich and poor in this country is] a very bad development. It’s creating two societies. And it’s based very much, I think, on educational differences. The unemployment rate we’ve been talking about. If you’re a college graduate, unemployment is 5 percent. If you’re a high school graduate, it’s 10 percent or more. It’s a very big difference. It leads to an unequal society, and a society which doesn’t have the cohesion that we’d like to see.

–Ben Bernake, 60 Minutes interview

So close.

Bernake is correct, the gap is creating a dual society. Unfortunately, he can’t see that education is largely irrelevant as a practical reason. If every person in this country had Ph.D.s the numbers wouldn’t be substantially different as mundane work still needs to be done.

Instead of trying to make Mr. Bernake guess, I’ll just spell it out: the dual economic culture is a result of class J wanting to maximize profits and productivity, reducing the costs involved in achieving said profits and productivity, and reward themselves for the magnificent job they are doing. The other class, class Q, basically does the work (when they can get it), will accept increasing burdens so long as some income is better than no income, and will vanish when the system breaks them financially and/or emotionally.

It’s really just that simple. Those in class J don’t happily associate with the hoi polloi. Wages, product per unit of time, and other practical matters are little more than numbers in a ledger. They are theory. They are counters on a casino table. Sometimes you win, sometimes you lose, but as long as the numbers are rosy (even if only through guile), then it’s a job well done.

Those in class Q have little power to change their lot. Ultimately they are dependent on Class J treating them as people and not playing pieces in some game. True small business owners understand this. They tend to be the best employers because they are with their employees in the trenches. Once you have corporate small businesses (i.e. the real power is in some tower located elsewhere and the local business is “small” in name only) or larger, the disconnect appears.

The net effect of how class J runs things is out-of-proportion compensation for the highest-ranked executives, disproportionately low wages for those actually producing the product, and an unsustainable rate of production that few humans can be expected to maintain for long. But what does it matter? If one breaks you just find another one, a more desperate one, to take its place…and possibly also the place of that other broken worker as well.

No, Mr. Bernake, the problem isn’t education. Unemployment is lower among college grads simply because it’s a weeding test imposed by class J. It has nothing to do with work or intelligence.

According to census figures, over the past forty years the GDP, or the productivity of the nation, has effectively doubled per capita in adjusted dollars. Median income (again, in adjusted dollars) fell by 7.4%. Just from that we can see that corporations are doing really well…getting more work for less pay. Looking closer at the numbers we also find that only the top 20% of income earners increased their wealth (by a substantial 6.7%) in the same period. The remaining 80% (or 4 out of 5) all lost earning power. The lowest 20% lost 0.6% (they’re poor, after all…they didn’t have much left to lose); the next 20%, the lower middle class, saw a decrease of 2.2%; the middle class saw income reduce by 2.7%; and the upper middle class got hit for 1.0%.

What’s the fix? You limit corporate compensation for all but founders of the company (people with good ideas should get to profit from them, after all) based on the wages of the common employee. OSHA guidelines need to be not just on physical safety, but also worker health (a rested employee tends to be more productive, an overworked employee is a costly mistake waiting to happen–likely sooner than later). A reduction on salaried employees to discourage work-per-hour abuses, or a cap on salaried hours before penalties on the company are imposed. Tax penalties for outsourcing to other countries with significantly lower wages. And probably the most difficult proposal: no safe havens from corporate taxes.

What it boils down to is very simple: fair wages for fair work. Fair work being that one person does the work of one person, not two or three or more. The principle that accumulated riches will trickle down the economic chain has been proven not to work. In fact, “trickle down” is a pretty obvious failure to anyone on the downstream end of the supposed flow. Rein in some of the greed in exchange for better employment practices and the system will self-correct. Unfortunately, Mr. Bernake is a member of class J–which makes it unlikely he’ll recognize what’s wrong and will continue to recommend class J fixes.